Recovery Watch

U.S. manufacturers indicated a strong end to the first quarter of 2015, with output, new business and employment all rising at an accelerated pace in March. As a result, the seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) picked up to 55.3 in March, up from 55.1 in February and well above the neutral 50.0 threshold. The latest reading signalled the strongest overall improvement in manufacturing business conditions since October 2014.
March data pointed to a steep expansion of manufacturing production volumes, with the latest upturn the fastest for six months.

Anecdotal evidence cited improving demand from domestic clients, successful new product launches and, in some cases, a catch-up effect following disruptions related to adverse weather earlier in the year.

Manufacturing new order levels increased at a robust and accelerated pace in March, driven by improving economic conditions and positive overall spending patterns among clients. The latest rise in incoming new work was the fastest for five months, but still less marked than the average for 2014 as a whole. Some manufacturers commented that weak demand from clients in the oil industry remained a factor weighing on new business gains, while a number of firms also pointed to softer export sales.

The latest survey indicated a decline in new work from abroad for the first time in four months, which survey respondents mainly linked to competitive pressures and the impact of the strong dollar/euro exchange rate.

Resurgent output and new business growth contributed to a further upturn in manufacturing payroll numbers during March. Higher levels of employment have now been recorded for 21 months in a row, and the latest increase was the fastest since last November. Additional staff hiring also reflected renewed pressures on operating capacity, as highlighted by the sharpest rise in backlogs of work for six months in March.

Average cost burdens decreased for the third month running in March, to signal the longest continuous period of falling input prices since mid-2009. As a result, factory gate charges increased at the joint-slowest rate since August 2012.

Manufacturers indicated another lengthening of suppliers’ lead-times. However, the latest deterioration in vendor performance was less marked than the 12-month low recorded in February. Some manufacturers noted that disruptions related to adverse weather and U.S. west coast port strikes had started to diminish.
Meanwhile, manufacturers continued to boost their input buying and inventory levels in March, which survey respondents linked to rising production schedules and a positive outlook for overall client demand.

Eurozone business activity grew at the fastest rate for almost four years in March. The Markit Eurozone PMI™ rose from 53.3 in February to 54.1 in March, according to the flash estimate based on an expected 85% of usual monthly replies, climbing for a fourth successive month to reach the highest since May 2011.
At 53.3, the average PMI reading for the first quarter was the highest since the second quarter of last year.

The upturn in business activity was fuelled by new order growth likewise accelerating further to the highest since May 2011.

The improvement was broad-based by sector. Growth of services business activity and new business both hit the highest since May 2011, accompanied by stronger rates of increase in both manufacturing output and new orders to the highest since May of last year. Growth of new orders for goods exports hit an eight-month peak.

Employment growth meanwhile picked up to the fastest since August 2011. Job creation in the service sector held steady at the near four-year high seen in February, while factory headcounts showed the largest monthly improvement since April last year.

Deflationary pressures eased during the month. Average prices charged for goods and services fell at the slowest rate since last July, the rate of decline easing in part due to the need for some firms to pass higher costs on to customers. Input prices showed the largest monthly increase since last July, boosted in part by higher US dollar-denominated import prices arising from the euro’s decline as well as higher staff costs.

Manufacturing selling prices and input prices rose for the first time in seven months, albeit up only modestly in both cases. In the service sector, prices charged fell, but the rate of decline was the weakest for nine months as input costs showed the strongest monthly increase since last July.

By country, business activity growth accelerated to the highest for eight months in Germany, with new order growth hitting a nine-month record. German factory output rose at a markedly faster rate, reaching the highest for nearly a year and catching up with the strong pace of expansion seen in services, which hit a six-month high. Input costs meanwhile rose for the first time in four months, pushing up selling prices.

The French PMI surveys signalled an expansion of business activity for a second successive month, albeit with the rate of improvement moderating slightly from February’s 42-month high and running well below that seen in Germany. New order growth gathered pace, however, edging up to the highest since August 2011. Manufacturing continued to disappoint in France, with output falling for a tenth successive month, leaving the upturn dependent on a further rise in services activity.

Elsewhere across the region, business activity rose at the fastest rate since last July, with new order growth accelerating to the fastest since July 2007 and job creation the strongest seen since September 2007.